MNCs in the News-2015-02-13

China’s NDRC just slapped a $975 million fine against Qualcomm, the NDRC’s largest anti-monopoly fine ever, and required it to ending certain bundling practices, change the handset base price used to calculate royalty payments, and eliminate differential customer pricing. Some observers conclude the deal was a win for Qualcomm because it removed uncertainty, would lead to a resumption of withheld royalty payments, and allowed the company to continue to operate in the world’s largest telecommunications market. Others fretted the deal would set an unfavorable precedent for Qualcomm elsewhere. Regardless, some argue the case showcased rising Chinese discrimination against foreign firms (Noel Randewich and Matthew Miller, “Qualcomm to Pay $975 million to Resolve China Antirust Dispute,” Reuters, February 9, 2015, http://www.reuters.com/assets/print?aid=USKBN0LD2EL20150209; Paul Mozur and Quentin Hardy, “China Hits Qualcom with Fine,” The New York Times, February 9, 2015, http://www.nytimes.com/2015/02/10/business/international/qualcomm-fine-c... Lan Lan and Gao Yuan, “High Royalties Key Reason behind Qualcomm Fine: NDRC,” China Daily, February 10, 2015, http://www.chinadaily.com.cn/bizchina/tech/2015-02/10/content_19542475.htm; Ian King, “Qualcomm Fined $975 Million in China, Sets Licensing Rates,” Bloomberg, February 10, 2015, http://www.bloomberg.com/news/articles/2015-02-09/china-fines-qualcomm-9... Noel Randewich and Gerry Shih, “With Antitrust Deal Done, Qualcomm Still Faces China Challenges,” Reuters, February 10, 2015, http://www.reuters.com/assets/print?aid=USKBN0LE0YI20150210; Junko Yoshida, “Chian Deal Squeezes Royalty Cuts from Qualcomm,” EE Times, February 10, 2015, http://www.eetimes.com/document.asp?doc_id=1325631; Gao Yuan and Lan Lan, “Record Fine to Have Little Impact on Qualcomm,” China Daily, February 11, 2015, http://www.chinadaily.com.cn/business/tech/2015-02/11/content_19553153.htm)

Recently the American Chamber of Commerce in China released its survey of 477 American firms’ perspectives on China. Businesses noted difficulties recruiting top executives because of pollution and a feeling they were “less welcome than before.” 1/3^rd of companies stated they had no plans to expand their investments in China or would increase them more slowly. Some of this had to do with a sense of market barriers or policy uncertainties, but also had to do with concerns about China’s economic growth prospects. Those surveyed expressed concern about labor costs, the lack of intellectual property protection, and Internet barriers, too (Edward Wong, “Survey of Foreign Companies in China Finds Pollution a Growing Problem,” The New York Times, February 11, 2015, http://www.nytimes.com/2015/02/12/business/survey-of-foreign-companies-i... Michael Martina, “U.S. Business Lobby Survey Warns of China Protectionism,” Reuters, February 11, 2015, http://www.reuters.com/assets/print?aid=USKBN0LF0E320150211; “US Firms Optimistic about China Despite Challenges: Survey,” WantChinaTimes, February 13, 2015, http://www.wantchinatimes.com/news-print-cnt.aspx?id=20150213000083&cid=...)

In early February, China’s ACFTU charged Foxconn Technology Group, the “world’s largest contract electronic maker,” with violating labor regulations by abusing its workers. It specifically said that Foxconn had overworked its staff causing mental problems and even death by suicide. Foxconn has invited critics to tour its factories to see working conditions for themselves. It admitted employees work overtime, but denied overtime was the cause of suicides and certain other problems highlighted by the ACFTU. Moreover, it said many workers liked to work overtime to bolster their incomes. One academic commentator called on unions to do more to protect workers (“Foxconn Invites Critics to View Its Operations in China,” WantChinaTimes.com, February 7, 2015, http://www.wantchinatimes.com/news-print-cnt.aspx?id=20150207000099&cid=... “Foxconn Hits Back at Critics Saying Employees Hungry for Overtime,” WantChinaTimes.com, February 8, 2015, http://www.wantchinatimes.com/news-print-cnt.aspx?id=20150208000014&cid=...)

Citizen, a Japanese watchmaker, earlier had decided to close its Guangzhou, China facility as part of an overall global workforce reduction initiative. At the time, it abruptly informed workers and only offered to pay its employees severance plus one month of salary. However, a gathering of 1000 workers as well as mediation by local labor unions and the Huapu District Bureau of Labor and Social Security led to a new deal with Citizen promising discharged workers pay severance pay plus two months salary. Furthermore, Citizen agreed to pay the workers’ social security. Almost all discharged workers accepted the revised deal (Zheng Caixiong, “Watch Factory Citizen to Pay More for Shutdown,” China Daily, February 10, 2015, http://www.chinadaily.com.cn/business/2015-02/10/content_19536344.htm)

At an event on trade in services, Deputy U.S. Trade Representative Robert Holleyman said that the US government viewed China’s new cybersecurity rules, which require technology companies to turn over source code to the Chinese government and use Chinese encryption algorithms, “as a major barrier” to trade rather than about ensuring security. He reported the Obama administration had raised concerns with Beijing at the highest level. Around the same time, the European Chamber of Commerce issued a press release detailing how Chinese internet blocking had hurt European businesses in China and made them reluctant to make R&D investments in China (Krista Hughes,” U.S. Has Raised Concerns with China about New Cyber Rules: Official,” Reuters, February 12, 2015, http://www.reuters.com/assets/print?aid=USKBN0LG26420150212; European Chamber of Commerce in China, “Internet Restrictions Increasingly Harmful to Business, Say European Companies in China,” February 12, 2015, http://www.europeanchamber.com.cn/en/press-releases/2235/internet_restri...)

Chinese firms have been dramatically increasing their European investments, pouring over $18 billion into the continent. Chinese companies go to Europe to take advantage of fire sales, asset privatizations, and changes in China’s policies. Cumulatively, Chinese firms have poured the most money into Great Britain with substantial amounts flowing into Germany, France, and Portugal. In 2014, large amounts flowed into agriculture and food, energy, and the automotive sector. Chinese FDI in Europe has dragged China into Greece’s travails and led Chinese Premier Li Keqiang to call upon Greek Prime Minister Alexis Tsipras to “provide better legal safeguards for Chinese companies” (Claire Jones and Jamil Anderlini, “Chinese Go on Spending Spree and Double Investment in Europe,” Financial Times, February 10, 2015; Ben Blanchard, “Chinese Premier Calls on Greece to Protect Investments,” Reuters, February 12, 2015, http://www.reuters.com/assets/print?aid=USKBN0LF1B420150212)

The murder of two Japanese nationals by the terrorist group ISIS has spurred Japanese firms operating abroad to pay more attention to security threats. They are realizing buying insurance and preparing medical assistance may not be enough and hence are looking at increasing security and information flows. The killings of Japanese citizens also may spur the Japanese government to adopt a more activist posture abroad, which has implications for the operating environment for and market of Japanese companies. It is leading some experts to call for Japan to enhance its security and economic intelligence gathering capabilities and overseas communication tools (Aaron Sheldrick, “Japanese Firms Face Wake-up Call on Threats of Violence: Security Expert,” Reuters, February 6, 2015, http://www.reuters.com/assets/print?aid=USKBN0LA0U820150206; Shusuke Murai, “Japan Must Improve Intel So Firms Can Prosper: NSA Official-Turned-CEO,” The Japan Times, February 7, 2015, http://www.japantimes.co.jp/news/2015/02/07/national/japan-must-improve-...)

In a meeting last week, Japanese Prime Minister Abe Shinzo and Thai Prime Minister Prayuth Chan-ocha agreed to develop a strategic partnership and deepen economic cooperation. An integral part of this cooperation is Japanese help in developing Thailand’s railway system and helping with the building of a production and distribution center called the Dawei Special Economic Zone (SEZ), which Thailand is developing with Myanmar. Prime Minister Chan-ocha stressed that the Dawei SEZ will offer “huge business opportunities for Japanese firms” (Masaaki Kameda, “Abe, Thai Junta Leader Agree to Cooperate on Railway Development, Special Economic Zone,” Japan Times, February 9, 2015, http://www.japantimes.co.jp/news/2015/02/09/national/politics-diplomacy/...

In the wake of China’s action against Qualcomm, the KFTC has initiated its own antitrust investigation to determine if Qualcomm “abused its position as a dominant chip supplier in the process of signing licensing agreements with Korean companies.” The KFTC noted it was in the process of collecting data from Qualcomm, Korean handset makers like Samsung and LG Electronics, and China’s NDRC. The KFTC seems likely to focus on Qualcomm’s charges and Qualcomm’s cross-licensing deals, both of huge import to Korean firms. Samsung has been trying to develop its own chip alternatives, but other firms remain highly dependent on Qualcomm (Kim Yoo-Chul and Bahk Eun-Ji, “Qualcomm under FTC Probe,” Korea Times, February 11, 2015, http://www.koreatimes.co.kr/www/news/biz/2015/02/123_173493.html; Simon Mundy and Song Jung-a, “Qualcomm Faces South Korean Antitrust Probe,” Financial Times, February 12, 2015)

Taiwan’s Ministry of Economic Affairs aims to bring US $11 billion of foreign investment into Taiwan in 2015, which would be an increase of 2 percent over the previous year. In this vein, it is dispatching high ranking government officials and delegations to Europe, Japan, and the US to court investors. Taiwan is especially keen to lure investment in wind power, electric car production, mobile communications services, semiconductor production equipment, and biotech. It wants to bring in foreign investors to build up R&D centers and help make Taiwan a regional transportation and logistics hub (“Taiwan Eyes US$11 Billion in Foreign Investments in 2015,” WantChinaTimes.com, February 8, 2015, http://www.wantchinatimes.com/news-print-cnt.aspx?cid=1201&MainCatID=12&...